The importance of insurance coverage should not be underestimated. Learn how it acts as a foundation for your financial wellbeing and protects your income and assets when you need it the most.
The Importance Of Insurance Coverage
"The insurance industry communicates through codes and check-off boxes. If there's no check-off box for you, you don't exist." - Jack Anderson
There are many times when we have to go through bad times, which may involve physical injuries or financial losses. And in such times, insurance seems to be our only hope. If you are not insured against uncertain risks, we have to bear the losses involved out of our own pockets.
The Basic Concept of Insurance
In simple words, insurance is a concept which involves two parties; namely the insurer and the insured, also referred to as the policyholder. The insurer is the insurance company, whereas, the policyholder is the one who buys the service. In this process, the policyholder has to pay certain amount of premiums at prescribed time intervals to the company. And in turn, the insurer agrees to bear the financial losses and expenses of the policyholder.
They payment of premiums transfers the risk of financial losses and for any covered claims - payouts completely are insurance company's responsibility. The importance of insurance is considered in property loss in business, loss of life, substantial medical expenses, damage to automobiles in case of accidents, etc. Following are 5 examples of the importance of insurance coverage:
- Financial Protection - Your family depends on your income to have a decent standard of living. This is why insurance is especially important once you start a family. It means the people who matter most in your life are protected from financial hardship if the unexpected happens.
- Financial Security - No matter how strong your financial position is today, an unexpected event can out your money at risk very quickly. In return for paying your premiums, the risk of these sorts of claims are transferred to the insurance company, so you can protect your savings and cover the expense up to your policy limits.
- Peace of Mind - No amount of money can replace your health or mental well being, or your role in your family. But you can at least get financial peace of mind by buying the right insurance coverage. This way you know that if anything happened to you, your family's financial security is protected by insurance.
- Reduce Stress - No one can predict the future. Unforeseen tragedies such as illness, injury or permanent disability, even death can leave you and your family facing massive financial and emotional stress. With the right insurance plan in place, you or your family's financial stress will be reduced, and you can focus on recovery and rebuilding your lives.
- Your Legacy - Life insurance can secure the financial future for your children, pay the mortgage, fund their education, set up a charitable trust and so much more.
Important Types Of Insurance Coverage
Health Insurance - No one wants to get sick or injured, but unexpected medical events happen. Having the right health insurance coverage helps pay for some of those unexpected costs, and provides financial protection against for large medical bills. Not having enough money to pay expensive medical bills is a common reason people file for Chapter 7 bankruptcy. It can ruin your credit history and cost you thousands in higher interest rates for years to come.
So health insurance is there to protect individuals against unexpected and mostly uncontrollable health issues that some people encounter - like being injured in a car accident by no fault of their own.
Auto Insurance - Car insurance protects you against third-party lawsuits and damages to your vehicle. If you are at-fault in a car accident, the injured party will want financial compensation. Without auto insurance, you will be held financially responsible and might be forced to pay for all the damages out of your own bank account. Not many people have enough money to do that, and that is why most states require some minimum amount of liability coverage.
While the largest auto insurance claims come from injuring someone else, a car is often one of a person's bigger purchases next to a home, and you want to protect it. Auto insurance can pay to repair your vehicle after an accident if you have collision coverage. Comprehensive coverage will cover other stuff like fire, theft, vandalism, deer, cracked windshields and storm damage.
In Business - Commercial insurance protects a business from closing due to a catastrophic loss. Businesses buy insurance to protect against the risk of unexpected damages - both to property and to people. General liability is the most basic type of business insurance.
If a customer slips and falls while on your premises or a product you manufacture injures someone, businesses liability insurance can help cover you. Business property insurance can help protect you against the losses from fire, winds, storms, theft and many other perils. Most businesses could not afford to pay for large losses like these, that is why the importance of insurance coverage can't we understated.
Life Insurance - If you have family and loved ones that depend on your income for their livelihood, you need life insurance because it replaces your income when you die. It helps with everyday expenses like food an utilities, but it also cover any outstanding debts, like a mortgage, credit cards and car loan. Even if you don't have anything else to give to your heirs, you can create an inheritance with a life insurance policy.
The Importance Of Insurance Coverage - The Bottom Line
We hope this article on importance of insurance coverage has been informative. The most important benefit of insurance is the payment of losses. An insurance policy will pay individuals or businesses for covered losses.